HM Treasury focuses on the affordability of public service pensions to the taxpayer. The government’s reforms have helped contain the potential increase in future public service pension costs by changing the way benefits are calculated, and by increasing the contributions that employees and employers make towards pensions. While affordability is important, HM Treasury has shown a lack of curiosity about other important issues, such as: the effectiveness of pensions as a means of recruiting and retaining staff; the impact on employers of increasing pension costs; the effect on people working in the public sector; and the potential knock-on impacts on other areas of public expenditure, for example on means-tested benefits. We have seen evidence of public service pensions issues affecting delivery of frontline services, and independent schools opting out of pension schemes because of increasing costs. This lack of curiosity means that HM Treasury doesn’t have the data it needs to understand the impact of its reforms, or whether it is achieving its objectives.
The Treasury seems to be unconcerned about the drop in enrolment by some workers. There is a danger of a perfect storm where some young people believe they cannot afford pension contributions because of high costs of living and retire with no equity and a reduced public sector pension as a result. The cost of supporting this generation will fall on future taxpayers. The Treasury needs to take a long-term view and consider what the interface is between generation rent, interest only mortgages, household changes and lower pension take up and consider what impact this could have on the need to provide state support in the future.
We are disappointed that HM Treasury did not act on all the Committee’s 2011 recommendations, particularly on providing clear and relevant information to employees. The government has made other mistakes in its reforms. HM Treasury wants members to meet the estimated £17 billion cost of putting right the age discrimination that led to the McCloud judgment, despite it being HM Treasury’s mistake. A mistake which could have been avoided by listening to advice and which will take many decades to resolve. HM Treasury has not yet performed an evaluation of its reforms and we are not convinced it is on track to meet its objectives for public service pensions. We have also identified other important issues which HM Treasury needs to address, including how pensions can be made more attractive to support, recruit and retain the staff needed to deliver public services, and the stark differences in the pensions received between different groups of members.